For the US it’s the usual confusion on US monetary policy this week ahead of the next meeting of the Fed, still weeks away in early May.
It was jobs and wages last week, this week it’s Consumer Price inflation and retail sales, with a ‘bonus’ of the minutes of the March meeting of the US Federal Reserve where the central bank lifted rates by 0.25% despite the fading banking crisis.
The CPI towers over the week – forecasts are for a fall in the annual rate to 5.2% from 6% in February with the month-on-month rate coming in at 0.3% (0.4% in February).
The core rate is forecast to come in around 5.5%, just down on the 5.6% in February which may not be all that encouraging for investors.
Core producer prices on Thursday are forecast to have slowed to an annual rate of 3.3% in March from 4.4% in February, which will be a bit more reassuring.
Moody’s economists wrote in their weekend note ” While we expect headline inflation will have slowed further given the favourable base effects related to energy prices, more important will be what happens to core service inflation.”
“The Federal Reserve has zeroed in on core services as a source of persistent price growth and will look for improvement on this front before deciding to pause rate hikes.”
Moody’s also pointed out that the latest weekly data on jobless benefits claims “will also now be more important to watch as recent revisions revealed a deteriorating trend in initial claims.”
“While still well short of the breakeven level, or that consistent with no monthly job growth, claims are clearly on the rise and the ongoing spate of layoffs announcements lends upside risk in the coming weeks.”
The US jobs report for March left slightly clearer signs that the labour market is starting to soften.
The US economy added a solid 236,000 jobs in March, right on forecast (235,000 to 240,000 was the estimate) which on the surface suggests the economy is still on a solid footing.
The February figure was revised from 311,000 to 326,000 but the strong 511,000 for January was cut to 472,000 and the US government’s Bureau of Labour Statistics said total new job numbers for the first two months of the year have fallen by 17,000. That was seen as a small sign of a weakening market.
March’s 236,000 new gigs was well under the 366,000 average for the last six months, another point in favour of those looking for a weaker jobs market.
The unemployment rate fell to 3.5%, just above the 53-year low of 3.4% set in January.
At the same time, average hourly wages were up 4.2% from 12 months earlier, down sharply from a 4.6% year-over-year increase in February and well under the 5.8% peak in April 2022. No wage price spiral here!
US jobless claims jumped by their most in 17 weeks, according to separate data last Thursday with the number of Americans applying for jobless benefits reaching 228,000 in the week to April 2, the highest since the week ended December 4.
For nine weeks in a row, claims had topped 200,000. While that indicated that more Americans were getting laid off than before, the Labor Department said changes in its seasonal adjustment processes in its claims reporting methodology helped boost the figures with a series of revisions of past weekly data.
However, there is now a belief that US jobless claims will start rising in coming weeks as the pace of layoffs grows.
Last week’s job vacancies figures for February showed a fall of 1.9 million over the last year to a still very higher at 9.9 million which is another sign of the gathering slowdown in the labour market.
Overall markets last week regained levels seen before the outbreak of the world banking disruptions on March 8 and 9.
Investors have become more convinced the Fed will cut rates in the second half to ward off an economic downturn. That has helped the S&P 500 rise 6.9% so far in 2023.
But seeing it was up a solid 6.2% in January, the period up to the past couple of weeks has been weak, thanks to those fears about banks in the US and Europe.
Markets will also watch first-quarter earnings, which start in this week with major banks including JPMorgan, Wells Fargo, PNC and Citigroup due on Friday.
Analysts expect S&P 500 earnings to fall 5.2% in the first quarter from the first quarter of 2022.
